Sarhad Chamber of Commerce & Industry (SCCI) Peshawar has called for broadening of tax base, reducing the rate and not passing further burden on the existing tax payers.
This has been recommended in the SCCI's recommendations on the upcoming federal budget 2019-2020.
The recommendations said that the present sales tax laws in the country are extremely complex and multifarious and perhaps that is why public perception about the imposition of sales tax/value added tax (VAT) is obviously antipathy. It said that Pakistan can turn around its economy it if exercises fiscal discipline and plugs gaping holes caused by bad governance in different sectors of economy.
The energy shortage is crippling production while a poor tax base and collection mechanism is aggravating the taxes to GDP ratio. The prevalent high rates of sales tax from 17 to even 29% as applicable on specific taxable goods, in itself invites for evasion of tax, which not only paves away for smuggling rather also inflicts a severe burden on the existing tax base.
It said that the rate of sales tax is quite high that is fuelling to inflation. On various forums in past, they had strongly agitated against the higher sales tax rates and demanded to bring that down to at least half of the present rate. Therefore, the chamber has recommended a strategic review of sales tax rate should be made and the same may be brought down to 10% to 13% instead of current 17% to 29%, while simultaneously carrying out certain steps to enlarge the tax base.
The SCCI further complaints that import of raw materials is subjected to sales tax ranging from 17% to 26% that not only resulting in increase of cost of materials to the same extent rather also upshot in promoting smuggling from the land routes including Afghan transit trade for the materials not available in Pakistan. Obviously the industrial undertaking utilizing such raw materials cannot compete with those using smuggled raw materials.
Secondly, it says that commercial importers paying up to 45% incidence of taxes on raw materials are mostly out of business, because they cannot compete with imports under multiple exempt/zero rated regimes and smuggled materials, resulting in loss of substantial amount to revenue.
To safeguard the interest of manufacturing sector, the SCCI proposed that sales tax on import of raw-materials may be substantially reduced to bring that down at 10% during next two to three years.
Similarly, the SCCI has also recommended that a minimum threshold for sales tax withholding should be introduced in the same manner as being done under the Income Tax Ordinance, 2001, which should be applicable at the time of making payment and not at all, on accrual basis.
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